Hair today, gone tomorrow

Hair today, gone tomorrow

Hair today, gone tomorrow

DD Hair Lounge, LLC, was formed as a limited liability corporation on August 21, 2013, by principal Uche Umeagukwu. She was familiar with the LLC process because she had formed another LLC on May 31, 2012, under the name DE Hair Lounge, LLC, which she cancelled on September 26, 2013, approximately one month after DD Hair was formed. She also formed another LLC called Uche, LLC, on October 24, 2014, while this case was pending.

DD Hair filed a complaint against its insurer, State Farm General Insurance Company, and State Farm agent Leo Gilling (together State Farm) on January 10, 2014, after State Farm declined to pay a burglary loss. On November 5, 2014, a certificate of cancellation was filed for DD Hair. Umeagukwu purportedly signed it as “president.” Consistent with the law at the time, the form stated: “Upon the effective date of this Certificate of Cancellation, this LLC’s Articles of Organization (CA LLCs) or Certificate of Registration (registered foreign LLCs) will be cancelled and its powers, rights and privileges will cease in California.”

DD Hair did not inform State Farm or the court that the certificate of cancellation was filed. State Farm discovered it in late September 2015. State Farm filed a motion for judgment on the pleadings, arguing that the law in effect at the time deprived DD Hair of the power to pursue its case against State Farm after its LLC status was cancelled. DD Hair argued that Umeagukwu’s signature on the certificate of cancellation was forged, and it sought reinstatement from the Secretary of State. DD Hair also filed a request with the court to reinstate its LLC status. The court denied the motion and the application because both procedures required resolution of the disputed authenticity of Umeagukwu’s signature on the certificate of cancellation.

The court held a hearing to determine whether the certificate of cancellation was authentic. On January 25, 2016, the court ruled that Umeagukwu’s signature was genuine, the certificate of cancellation was validly filed, and DD Hair could not maintain the action against State Farm. The court dismissed the action with prejudice on April 4, 2016. DD Hair appealed.

On appeal, DD Hair contended that a 2016 amendment to the LLC statute gave it authority to continue to prosecute its case, despite filing the certificate of cancellation in 2014.

The court held that a section of the revised LLC act unambiguously provided that the entire revised act applied to DD Hair’s existing acts and acts undertaken after January 1, 2014. DD Hair filed the certificate of cancellation on November 5, 2014.

The court declined to apply the relevant section of the revised act to reinvigorate DD Hair’s right to pursue its case. DD Hair’s principal Umeagukwu concealed the November 2014 certificate of cancellation for almost a year before State Farm discovered it in September 2015. Then she claimed the certificate was forged, forcing the trial court to hold an evidentiary hearing, which prolonged the proceedings into 2016, after the change to the relevant section of the LLC statute became effective. After the hearing, the court found that Umeagukwu was familiar with the LLC process in California and found that her claim that she did not sign the certificate of cancellation was “mistaken.” The appellate court said it could reasonably infer from these findings that Umeagukwu was aware of both the existence and authenticity of the certificate in November 2014. Had she been forthright, DD Hair’s case would have been swiftly dismissed and judgment entered based on the revised act then in effect. Umeagukwu’s delays and denials positioned DD Hair to raise the argument that the newly revised section preserved its rights.